3QFY16 CAD/GDP corrects to 1.3% See surplus in 4Q and to remain low in FY17; INR to correct still 21 March 216 ECOSCOPE The Economy Observer Balance of Payments 3QFY16 CAD/GDP at 1.3% and trade deficit at 6.4% The Balance of Payments (BoP) data release for 3QFY16 showed Net capital flows at USDb while RBI further correction in CAD/GDP amidst contracting external trade. absorbed USD4b as forex reserves CAD/GDP ratio at 1.3% was better in QoQ and YoY terms. However, YTD CAD/GDP stood at 1.4% invisibles and capital flows remained weak leading to marginal BoP Net capital flow USD3b; BoP at USD16b FY16 CAD/GDP at.7%,.9% in FY17 surplus that was absorbed fully by RBI in its forex reserve kitty. INR bias for nominal depreciation YTDFY16 CAD/GDP too was placed lower at 1.4% vis-à-vis 1.7% in YTD. Lower capital flows however, reduced the overall BoP surplus to USD16b from USD33b in YTD. We expect CAD/GDP to turn surplus in 4QFY16 while the deficit may rise only marginally in FY17. However, structural weakness in trade and services account and somewhat uncertain capital flows together with RBI s proactive absorption is likely to keep the bias on INR to depreciate nominally. I. CAD/GDP eases to 1.3% in 3QFY16 CAD/GDP eases: Current Account Deficit stood at USD7b (1.3% of GDP) as compared with USD9b (1.7% of GDP) during 2QFY16 and USDb (1.5% of GDP) during 3Q. Exports and imports lowest in 21 quarters: Exports fell further to USD65b that was the weakest in 21 quarters. Imports at USD99b too was the lowest for as many quarters. Thus trade deficit at USD34b remained closer to the recent lows of USD31b of Mar-. Invisibles weakest in quarters: Net invisibles (comprising services, factor incomes and remittances) have fallen again and at USD27b was the lowest in quarters. While net services surplus remained low, remittances declined both QoQ and YoY. Net capital flows low at USDb: At USDb net capital inflow remained low vis-à-vis USD23b YoY but improved marginally from last quarter of USD9b. While FDI picked up, FIIs registered and outflow while NRI deposits moderated too. Overall BoP marginal surplus of USD3b: For the second quarter in succession BoP was just in balance with USD3b surplus after nil surplus of previous quarter. Net forex accretion of USD4b was nearly to the extent of BoP surplus. The bias on the part of RBI to accumulate forex reserves have kept the pressure on INR helping it to depreciate nominally, although this has merely maintained the REER at a relatively stable level. II. CAD to turn surplus in 4QFY16; see FY17 CAD/GDP at a tad higher at.9% Surplus in last quarter but INR to be under pressure: CAD/GDP for 4QFY16 is likely to turn surplus on the back of sharp drop in total trade and deficit. Structural weaknesses in services trade and uncertain nature of capital flows given the policy of absorbing forex reserves by RBI may continue to put the pressure on INR even though we estimate CAD/GDP to correct to.7% in FY16 and to remain low at.9% in FY17. Dipankar Mitra (Dipankar.Mitra@MotilalOswal.com); +91 22 392 545 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/institutional-equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Exhibit 1: Trade deficit declined both YoY and QoQ Trade Deficit (% of GDP) Exhibit 2: However, the extent of CAD/GDP decline was of lower order CAD/GDP (%) Mar- Sep- Mar- Sep-.2.1 6.1 7.2 7.9 7.5 6.1 6.9 7.5 6.4 1.5 2.2 1.5 1.2 1.7 1.3 Exhibit 3: Overall BoP just balanced, leaving scope for large depreciation 62 Overall BoP balance (USDb) 7 15 29 3 61 6 62 62 INR/USD (RHS) 66 65 64 Exhibit 4: RBI s accumulation would have kept pressure on nominal INR too Forex Reserves (USDb) Forex accretion (USDb, RHS) 3 7 7 34 316 3 32 341 355 35 352-1 4 Mar- Sep- Mar- Sep- Exhibit 5: CAD to move to surplus in 4QFY16 before turning into moderate deficit again In USDb 3Q 4Q 1QFY16 2QFY16 3QFY16 YTD YTDFY16 FY Exports 72 6 6 65 245 21 319 317 263 276 Imports 9 12 15 99 35 36 466 461 33 42 Trade Deficit -39-32 -34-37 -34-1 -16 - -5 - -6 Invisible Surplus 31 31 2 29 27 7 4 5 16 16 Current A/c deficit - -1-6 -9-7 -26-22 -32-27 - -2 Net capital flow 23 3 19 9 59 3 49 9 5 7 BoP Balance 15 29 3 33 16 16 62 36 5 As % of GDP Exports 15.6..6.5.3 16.3.1 17.1 15.5.7.3 Imports 23.1 19.9 2.5 2.9 1. 23. 2. 25. 22.6 1.5 17.9 Trade Deficit -7.5-6.1-6.9-7.5-6.4-7.5-6.9-7.9-7.1-5. -5.6 Invisible Surplus 6. 5.9 5.6 5.7 5.1 5. 5.5 6.2 5. 5.1 4.7 Current A/c deficit -1.5 -.1-1.2-1.7-1.3-1.7-1.4-1.7-1.3 -.7 -.9 Net capital flow 4.4 5. 3.7 1.7 2. 3.9 2.5 2.6 4.4 2.4 3.1 BoP Balance 2.9 5.6 2.5..7 2.2 1..9 3.1 1.7 2.2 21 March 216 2
Macro Economic Indicators Annual FY6 FY7 FY FY9 FY1 FY FY I. National Income (Growth %) Nominal GDP (USDb) 34 94 1,239 1,226 1,366 1,7 1,22 1,2 1,64 2,42 2,74 2,249 Gross Domestic Product 9.5 9.6 9.3 6.7.6.9 6.7 5.4 6.3 7.1 7.3 7.3 Agriculture 5.1 4.2 5..1..6 5. 1.5 4.2 -.3 1.1 4. Foodgrains (M Ton) 29 217 231 234 21 245 259 257 265 252 253 25 Rainfall (% of long per -1. -5.2 -. -1. -1.6 1. -7.2-9.5 6.4 -.9 -.. Industry 9.7.2 9.7 4.4 9.2 7.6 7. 3.6 5. 5.9 7.4 7.5 Services 1.9 1.1 1.3 1. 1.5 9.7 6.6.1 7. 1.3 9.2.1 II. Inflation (Y-o-Y %) WPI (Annual Averages) WPI - All commodities 4.4 6.5 4.. 3.6 9.6.9 7.4 6. 2. -2.5.3 Primary articles 2.9 9.6.3.1.7 17. 9.9 9. 9. 3.1.4 -.4 Fuel & power 9.5 6.5..6-2.1.3.6 1.6 1.1 -.6 -.6-3.6 Manufactured products 3.1 5.6 6.1 1. 5.7 7.3 5.4 3. 2.4-1.2.9 CPI-IW/CPI-RU (from ) 4.4 6.7 6.2 9.1.4 1.5 1.5 1.2 9.5 6. 4. III. Fiscal Situtaion (as % of GDP) Total receipts.3.6.3 15. 15.9 15.6..9.7.3.2.1 Direct tax 4.5 5.4 6.3 6. 5. 5. 5.6 5.5 5.6 5.6 5.5 5.6 Indirect tax 5.4 5.7 5.6 3. 4.5 4.5 4.7 4.4 4.4 5.2 5.2 Net tax 7.3.2. 7.9 7.1 7.4 7.2 7.3 7.2 7.2 7. 7. Total expenditure.7.6.3 15. 15.9 15.6..9.7.3.2.1 Plan 3. 4. 4.1 4.7 4. 4.1 4. 3.7 3.5 3.7 Non-plan 9.9 9.6 1.2 1.9.2 1.7 1. 9.9 9.7 9.6 9.6 9.5 of which subsidies 1.3 1.3 1.4 2.3 2.2 2.3 2.4 2.5 2.2 2.1 1.9 1.7 Fiscal deficit 4. 3.3 2.5 6. 6.5 5.9 4.4 4.1 3.9 3.5 Revenue deficit 2.5 1.9 1.1 4.5 5.2 3.3 4.4 3.6 3.1 2.9 2.5 2.3 Combined fiscal deficit (cen 6.5 5.4 4.1.5 9.6 7.4. 7.1 6.9 6.6 6.1 5.7 Public debt 92.3. 3.5 2.2 79.9 74.1 72.3 73.2 71.9 71.9 72.5 72. IV. Money and Banking (Y-o-Y%) Reserve money 16.9 23.9 31. 6.4 17. 19.1 3.6 6.2.4.3.7. Money Supply (M3) 21.1 21.7 21.4 19.3 16.9 16.1.5.6.4 1. 1.9.5 Depos its 23.4 23. 22.4 19.9 17.2 15..4.3.3.7.1. Bank credit 3. 2.1 22.3 17.5 16.9 21.4 17..1.6.5.5.5 V. External Sector (in USDb) Exports 15 9 166 19 251 31 37 319 317 263 276 Imports 157 191 25 39 31 31 5 52 466 461 33 42 Trade Deficit -52-62 -91 - - - -19-196 - -4 - -6 Invisible Surplus 42 52 76 92 6 1 17 5 6 16 16 Current A/c deficit -1-1 -16-2 -3-44 -7 - -32-2 - -2 Net capital flows 25 45 17 7 53 57 6 9 49 9 5 7 Forex Reserves 152 199 31 252 279 35 294 293 34 341 355 37 (As % of GDP) Exports.6.6.4 15.5.2.5 16. 16.5 17. 15.5.7.3 Imports 1. 2.1 2. 25.4 21. 22.1 27. 27. 24. 22.6 1.5 17.9 Trade Deficit -6.2-6.5-7.4-9. -.6-7.6-1.3-1.5-7.9-7.1-5. -5.6 Invisible Surplus 5. 5.5 6.1 7.5 5. 5. 6. 5. 6.1 5.7 5.1 4.7 Current A/c deficit -1.2-1. -1.3-2.3-2. -2.6-4.2-4.7-1.7-1.4 -.7 -.9 External debt 17.3 1.2 1.1 2.5 1.9 17.3 1.7 21.4 23.2 22.4 24. 25. VI. Financial Markets (Avg %) Call rate 5.6 7.2 6.1 7.1 3.2 4.5...1 7.7 6.9 6. 1-yr AAA corporate bond 6.7.5 9.3 9. 5.9.1 9.6.2 9.4.9.6 7. Yield on 1-yr G-s ec (%) 7.1 7. 7.9 7.6 7.2 7.9.4 9.3.3.3 7. 7.3 Exchange Rate (INR/USD) 44.3 45.3 4.2 45.9 47.4 45.6 47.9 54.4 6.5 61.1 65.5 6. BSE Sensex return 73.7 15.9 19.7-37.9.5 1.9-1.5.2 1. 2 P/E ratio (Tralling) 21.6 1.2 1.. 21. 19. 15.5 15.9 16.7 2.6 19.1 Market capitalisation (as % 1. 2.5. 54. 95.2 7.9 7.4 63.7 65.5.6 61.6 Oil price (Indian Basket, US 55.7 62.4 79.5 2.7 69.6 5.1 1.9 1.3 15.5 4.2 47. 45. Figures in red are estimates 21 March 216 3
Macro Economic Indicators Quarterly Jun- Sep- Dec- Mar- Sep- I. National Income (Growth %) Gross Domestic Product 6.7 7.4 6.3 7.4.1 6.7 6.2 7.2 7.5 7.1 Agriculture 2.7 4. 5. 4.6 2.3 2. -2.4-1.7 1.6 2. -1. Industry 5.9 5.2 5.2 3.9. 5.9 3. 5.7 6. 6.4 9. Services.4 9.6 7. 5.6.6 1.7.9 9.3 9. 9.4 9.4 II. External Sector (USDb) Exports 74 1 4 2 3 72 6 6 65 Imports 4 5 1 1 7 3 9 12 15 99 Trade Deficit -5-33 -33-31 -35-4 -39-32 -34-37 -34 Invisible Surplus 29 2 29 29 2 29 31 31 2 29 27 Current A/c deficit -22-5 -4-1 -7 - - -1-6 -9-7 Net capital flow 21-5 24 9 19 1 23 3 19 9 Forex Reserves 25 276 296 34 316 3 31 3 355 35 352 Macro Economic Indicators Monthly Apr '15 May '15 Jun '15 Jul '15 Aug '15 Sep '15 Oct '15 Nov '15 Dec '15 Jan '16 Feb '16 I. Growth and inflation (Y-o-Y %) IIP 3. 2.5 4.2 4.3 6.3 3.7 9.9-3.4-1.2-1.5 WPI - All commodities -2.4-2.2-2.1-4. -5.1-4.6-3.7-2. -1.1 -.9 -.9 Primary articles.5-1.1 -.5-4. -4.2-2.3. 2.2 4.6 4.6 1.6 Fuel & power -. -9.4 -.9 -.6-16.2-17.7-16.3 -. -9.1-9.2-6.4 Manufactured products -.5 -.5 -. -1.5-2. -1.7-1.7-1.4-1.5-1.2 -.6 CPI-RU 5. 5.4 3.7 3.7 4.4 5. 5.4 5.6 5.7 5.2 II. Fiscal situation (as % of budgeted) Total receipts 2.2 4.4. 17.7 3.3 43.5 5. 53.9 67.6 74. of which tax revenue -.3 2.2.1 16.7 22. 4.2 46.6 5.5 67.6 73. Total expenditure.7. 24.2 33. 41.2 51.2 57.5 64.3 73.9. Non-plan 9.1 15.3 24.1 33. 41.6 5. 57.2 64.3 73. 1.4 Plan 7.6.4 24.7 33.9 4.1 54.6 5.2 64.1 74.4 79.1 Fiscal deficit 23. 37.5 51.6 69.3 66.5 6.1 74. 7. 7.9 95. Revenue deficit 26.1 43. 5.6 77.6 74.7 6.2 72.9 7.5 1.7 7. III. Money and Banking (Y-o-Y%) Reserve money.9.3 1.2 9.7 9.2..2.2.3..6 Money Supply (M3) 1.9 1.5 9.9 1.1 1.1.4.2.2..4.4 Bank Credit (Y-o-Y %) 1.5 1.2 9.3 9.4 9.6 9.6 9.4 9..1.5.5 Deposits (Y-o-Y %).3.9.4..6.2. 1.4 1.9.3 1.6 IV. External Sector Exports (USD b) 22 22 22 23 21 22 21 19 22 21 21 Exports (Y-o-Y %) -. -2.5 -. -1.3-2.6-24. -17.3-27.2 -.4 -.1-5.7 Imports (USD b) 33 33 33 36 34 32 31 3 34 29 27 Imports (Y-o-Y %) -7.9-16.3 -. -1.7-1.1-25.7-21.6-3.4-4. -.2-5. Trade Deficit (USD b) 1 1 1 1 7 Forex Reserves (USD b) 345 352 355 353 352 35 354 352 352 349 347 Real effective exchange rate 1.1 19.6.5 1 1.6 1.6 1.7 1.2 1.6 1.2.4 RBI's net forex intervention 5.4 2.6.6.2-1.6 -.1 1.9. -.2. V. Financial Markets (Avg %) Call rate 7.2 7.1 6.9 6. 6.9 7.1 6.6 6.7 6.6 6.7 6. Govt borrowing (% completed). 21.3 31.5 43.7 53. 6. 73 1 9 1 91-day T-bill 7.9 7.9 7.7 7.5 7.4 7.4 7.1 7.1 7.2 7.3 7.4 Yield on 1-yr G-s ec (%) 7. 7.9.. 7. 7.7 7.6 7.7 7. 7. 7.7 SBI Base rate 9.9 9.9 9.7 9.7 9.7 9.7 9.3 9.3 9.3 9.3 9.3 CP - 3 month.6.2 7.9.2 7. 7.5 7.7 7.7 7..9 9.3 CD - 1yr.3.3..1 7. 7.4 7.6 AAA corporate - 1yr.4.4.3.2.2.2 7.9..2.2.5 Exchange Rate (INR/USD) 62. 63. 63.9 63.6 65.1 66.2 65.1 66.1 66.6 67.3 6.2 BSE Sensex return -3.4 3. -.2 1.2-6.5 -.5 1.9-1.9 -.1-4. -7.5 P/E ratio (1 Year Forward) 2. 2.3 2. 19.9 1.4 1.1 1.2 17.6 17.3 16.3.9 Mkt capitalization (as % of GDP 7. 72.4 71.1 73.6 6. 6.5 69. 69.9 71. 66.6 6.7 Oil (Indian basket, USD/bbl) 59.1 63. 61.7 56.3 47.3 46.1 46.7 42.5 35.7 2.1 3.5 21 March 216 4
ECOSCOPE Data Monitor Annual GDP growth (%): Moderate recovery in growth expected Quarterly/Monthly GDP growth (%): Some slowdown in last quarter.6.9 6.7 6.6 7.2 7.3 7.5 4.5 6.7 7.4 6.3 7.4.1 6.7 6.2 7.2 7.5 7.1 FY FY.3 9.6 1.5.9 1.5 7.4 1.2 6. 9.5 2.1 6. 3.5 FY1 FY FY Mar- Jun- Sep- Dec- Mar- Sep- Inflation: Sharp decline to continue Inflation: WPI still negative while CPI ~5% WPI CPI-IW / CPI-RU WPI CPI-RU May-15 Jul-15 Nov-15 Jan-16-2.4-2.2-2.1-4. -5.1-4.6-3.7 5. 5.4 3.7 3.7 4.4 5. -2. 5.4-1.1 5.6 -.9 -.9 5.7 5.2 Fiscal deficit (% to GDP): Consolidation process steadfast Centre Centre + states 5.7. 7.1 4.4 6.9 4.1 6.6 3.9 6.1 3.5 5.7 FY Credit growth constrained by slowdown and tight money Money Supply (M3) Deposits Bank credit 17 Fiscal trend: Focus on year-end consolidation As % of full year budget 5 5 95 75 55 35 15-5 Receipts Expenditure Fiscal deficit Apr- Jun- Aug- Oct- Dec- Feb- Apr- Aug- Oct- Moderate uptick in credit growth seen 17 M3 Bank Credit Deposits 15 FY 9 Apr- Aug- Oct- 21 March 216 5
ECOSCOPE Data Monitor Annual External sector: On sharp correction course FY Quarterly/Monthly External sector: Drop in total trade is reducing deficit Exports Imports Trade deficit (USD b) 3 % of GDP -4.7-7.9-1.7-7.1-1.4-5. -.7-5.6 -.9 1-1 -3-5 -1.5 Trade Deficit Current A/c deficit Apr- Aug- Oct- Financial markets: Rates remained flat and may fall now Call rate Yield on 1-yr G-sec (%) 1 6 4 Financial markets: The spike in rates due to liquidity shortage 1 9 CP - 3 month AAA corporate - 1yr 2 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY FY9 FY1 FY FY 7 Apr- Aug- Oct- Market return moderated in FY16 4-4 - Market capitalization (as % of GDP) (RHS) BSE Sensex return (LHS) 26 26 23 42 52 2 3 55 95 9 69 63 66 62 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY FY9 FY1 FY FY FY16 9 7 5 3 1 Markets are fairly valued now Market capitalization (as % of GDP) (RHS) BSE Sensex return (LHS) 4-4 - - 6 67 72 71 73 74 77 79 77 1 2 7 72 71 74 69 6 7 7 71 67 61 Apr- Aug- Oct- 96 64 4 32 16 INR, forex reserves: INR volatile; forex reserves recovered 75 7 65 6 55 5 45 4 35 Forex reserves (USD b, RHS) Exchange rate (INR/USD, LHS) FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY FY9 FY1 FY FY 4 35 3 25 2 15 1 5 RBI intervened to stabilize INR RBI's net forex intervention (USDm) (LHS) Exchange Rate (INR/USD) (RHS) 1 6 4 2-2 Apr- Aug- Oct- 69 67 65 63 61 59 57 55 21 March 216 6
ECOSCOPE REPORT GALLERY
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